The US Attorney for the Eastern District of New York has announced that Patrick McDonnell, aka Jason Flack, who purportedly operated a Bitcoin trading firm was arrested by the FBI on Tuesday over more than $1 million crypto-related fraud.
The court order finds that Staten Island-based CabbageTech, doing business as Coin Drop Markets (CDM), and its principal Patrick McDonnell ran a fraudulent scheme that involved buying and trading the cryptocurrencies Bitcoin and Litecoin. According to the US Attorney, McDonnell was indicted on nine counts of securities and wire fraud. He faces up to 20 years in federal prison if convicted.
The CFTC alleges that beginning in November 2014 and continuing through January 2018, the defendants conspired to defraud investors by enticing them to send their money to CabbageTech, in exchange for trading recommendations and digital coin purchases under McDonnell’s direction.
Nearly all of the pool money was lost, according to the complaint. The defendants are accused of fraud, misappropriation, registration violations and issuing false statements. In total, McDonnell defrauded ten victims of $194,000, 4.41 Bitcoin, 206 Litecoin, 620 Ethereum Classic, and 1,342,634 Verge coins.
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A Ponzi-like Fashion
In connection with the promotion of their pool, McDonnell made a series of materially false claims to lure investors interested in digital coins trading. The claim was made that pool participants could get extraordinary investment returns – up to 300 percent in less than a week.
“However, neither McDonnell nor CabbageTech provided investment services. Instead, McDonnell sent investors false balance statements purportedly showing that their investments had been profitable, and stole their money for his personal use. When investors requested refunds, McDonnell initially offered excuses for delays in repayment, and eventually stopped responding at all,” stated USPIS special agent-in-charge Bartlett.
Court documents also reveal that he used new investors’ funds to pay back other investors in a Ponzi-like fashion, so that they would invest or refer additional money, thereby allowing the scheme to continue for a longer period of time.
Instead of using the investors’ monies in trading, the fraudsters misappropriated all of the funds, then removed the website and social media materials and ceased communicating with customers.